In 2010, the “Foreign Account Tax Compliance Act” regulation was adopted by American representatives. It consists on fighting the tax evasion by identifying American taxpayers in foreign financial institutions. With this text, the United States seek to optimize the collection of taxes owed by American citizens and residents investing abroad and not declaring their generated incomes.

FATCA entered in force on July 1st, 2014. Some countries signed an agreement with the US Treasury (IGA), and financial institutions of the concerned country were subject to a FATCA reporting to their own tax authorities. Other countries, such as Morocco, have not signed it yet. However, financial institutions can directly report to the American tax administration.

FATCA principles

The declaration is based on the management of indicia for individuals and indicia and criteria for companies.

For individuals, banks must identify the “US indicia” that enables to determine clients suspected to be of a US nationality.

They must analyze the document provided by the client, from the ID to specific forms.

They must also consolidate, by assets type (securities, life insurance and deposits), the client’s balance to verify if it exceeds the reportable threshold (50 000$).

Photo 1 and 1bis: FATCA management procedure for individuals

The above scheme presents obligations in the banks procedures. It is generally recommended to identify, for all clients, the US indicia identification and to ensure the provided documents completeness. This may happen in case of a client’s context change.

For companies, FATCA asks to go further. This regulation requires the management of criteria concerning the legal form, the business sector, links between persons (associates, shareholders, and structures) as well as the level of holding.

Once these procedures are set, the FATCA regulation imposes the inclusion of the client total assets amount, if the client has one or more US indicia, according to the following thresholds:

Below the exemption threshold (i.e. 50 000 $)

Between the exemption threshold and the High Value Account threshold (1 million $)

Above the High Value Account threshold.

It must also be possible to manage evolutions between each report, i.e. the context change when the client passes from a range to another.

FATCA imposes an information sharing structure to communicate with the American tax administration.

FATCA and its impacts on the banks

For banks, the FATCA regulation setup imposes three stages:

First, identify the US indicia compared with the bank’s clients stock on the regulation implementation date. This is an overview about the clients stock from the principles stated above.

Then, in the procedures of starting a relationship with the bank, setting actions and controls to be performed to determine if the new client is of US nationality.

Finally, setting a permanent control on the clients’ data reliability. This last stage seems the most structuring to be set in this procedure, with a special interests in the workflow tool implementation.

For each account opening, the bank must control the client’s information and documents to determine if it is a US account or not. The bank must complete the FATCA requirements by the documents collected via AML rules (Anti Money Laundering) and KYC (know Your Client).

Thus, the bank’s information system must be able to manage the US indicia detection.

Furthermore, the bank must be able to set an information review to verify the collected data and documents reliability. It is important to show the bank’s willingness to provide the correct information for the US indicia identification.

What device must be set in the banks?

Banks are more and more organized according to distribution and production. In FATCA requirements, the distribution functions seem to have the role of relevant information collection to be then transferred to the production functions.

According to the number of participators in the cycle, impacts on organization are more or less important; for example, if the bank uses the sub-processing, the need to consolidate assets will present itself.

It is obvious that banks have already analyzed the American clients’ potential to adapt the organization and impacts. However, the CRS arrival (Common Reporting Standard) for OCDE countries, which goals are very close to FATCA, touches a more important scope of concerned clients. FATCA seems to be the “mouthing” of more important requests of tax reporting in the name of the fight against tax evasion.

Banks will certainly have to review their position which was a “light” device to process FATCA and focus on an organization more consistent with the current tendency to automate information sharing. Even countries that are not directly concerned may be pressured to set this information sharing.

Banks must realize the processing cost of non-aware clients and recalcitrant clients.

First, the reminders cost, in terms of specific processing to manage them, and in terms of commercial teams mobilization. Then, potential litigations cost facing the difficulty of retrieving documents and expected information.

Given these difficulties and costs, some banks preferred not having American clients anymore. However, this strategic choice is not costless yet, because it does not relieve the bank from setting documents and indicia verification device. Many of our clients have set a minimum device to show their capabilities to detect a potential US client.

FATCA : impacts according to the national political choice

The FATCA application and its impacts are linked to the political position of each Country. The United States need an agreement from each state’s authorities. FATCA’s implementation starts by a bilateral agreement between the country and the United States.

All states or recalcitrant Institutions are exposed to potential retaliation by Americans.

Among signatory states, we have Tunisia, Algeria, South Africa, Angola, Mauritius and Cape Verde, amongst others that are in the first group IGA1. For this group’s countries, States gather reporting files from banks before transferring them to Americans.

There is another group, the IGA2, where States are signatory of the bilateral agreement but country’s Institutions directly transfer the reporting files to Americans.

Finally, there are still many countries that have not signed an agreement; such as Morocco. However, this country’s banks can take the initiative to process FATCA. This enables them to avoid any retaliation by the United States.

The recalcitrant clients’ specific processing “brain teaser”

If a bank is in a country that did not sign the bilateral agreement, it must manage the withholding tax of 30 % on recalcitrant clients US incomes. This penalty’s impact is significant on these recalcitrant clients’ securities accounts management.

In this case, the bank must set the following specific “heavy” processings:

Client’s reference database upgrade to “tag” recalcitrant clients,

Characteristics on values reference database upgrade to manage a flag for those of the US zone,

Transactions tax processing upgrade to integrate this withholding tax

Accounting processing upgrade to translate this withholding tax in the bank’s books.

The aforementioned points are not necessarily the only ones; in fact, if the bank passes by a securities sub-processor, it must certainly modify interfaces and processings between the two institutions.

FATCA requirements and the banks “digitalization”

Banks constantly innovate in their local and remote client relationship. The client relationship can be divided in two major categories:

Customized relationship,

Automated relationship.

Banks develop their distribution channels in an omnichannel logic.

The customized relationship aims to provide clients with advises, mostly on complex products. It must enable to adapt product to clients’ expectations. Mainly, it passes through the customer relations manager who must develop an individual relationship with a higher added value for clients.

The aim for banks is to enhance the clients’ satisfaction and ensure their loyalty.

Concerning this type of relationships, the bank will be able to integrate FATCA’s requirements throughout the interaction with clients. The advisor must be able to know the expected information as well as missing documents. He must also be able to easily collect these documents.

Once again, the aim is to not take a long time in this exchange and to collect the information that enables to meet FATCA’s needs. Thus avoid having as many recalcitrant potential clients as possible.

The automated relationship groups the services permanently available, either remotely (internet, mobile internet), or via automatic terminals available 24h/24h inside the branches, among others. These services enable to realize simple banking transactions whenever the client wants to and autonomously.

The aim for banks is to outsource low added value transactions. Thus, they reduce the transactions’ costs and processing times.

Concerning the development of tools for digitalization, FATCA’s requirements are clearly challenging. For example, starting a relationship. This is a management act that can be automated, thanks to the new technologies, mobile applications, documents’ dematerialization tools. Managing FATCA’s requirements makes this process more complex; which means automating these indicia and documents management, but also setting controls as well as alerts for openings without information completeness.

Workflow management

Throughout this article, we addressed consequences for banks linked to FATCAs requirements. We can measure its impact on the client relationship management procedures, on the information processing as well as the tool to report to the tax authorities.

We think that the tax reporting requirements reinforce the need to automate the processes and alerts/reminders inside banks.

A BPM (Business Process Management) tool is used to manage the ever greater need to collect clients’ data and documents as well as the current tendency to set aside clients management acts.

This last point seems to be an interesting approach, with the hindsight, especially within the frame of currently guiding banks to reconcile FATCA’s constraints and digital bank.

Behind this “political revolution” of anti-American tax evasion fight, FATCA causes some significant impacts on the banks’ organization and information systems. This becomes more true when the local authorities do not sign the bilateral agreements with the United States, as is the case for Morocco.